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Wealthfront Review – Professional Investment Management and Financial Planning at a Fraction of the Cost

Wealthfront is the largest of the automated online investment platforms known as robo advisors. Not only is Wealthfront the largest robo advisor, they are also only robo advisor to offer automated investment management and financial planning. The company currently has $5.5 billion under management.

Robo advisors offer a low-cost alternative to traditional investment management. They provide professional investment management services at a fraction of the cost of traditional investment management services, and with far smaller minimum initial investments.

Wealthfront is one of the top robo advisors available, and for a bunch of good reasons.

Wealthfront is the only company that offers both investment management and financial planning fully through their software. This makes it easy for individuals to manage their investments and their financial plan through their smartphone, tablet, or desktop computer.

Getting Started with Wealthfront

When you sign up with Wealthfront, the first thing you do is take a quiz that includes a series of questions that are designed to determine your risk tolerance. Wealthfront will use this determination along with your age and other factors as a basis for the portfolio they will construct for you.

For example, if your answers indicate that you are a conservative investor, your portfolio will be skewed more heavily in favor of income based investments. If you have a great tolerance for risk, your portfolio will be invested more heavily in equities.

Wealthfront’s investment strategy is based on Modern Portfolio Theory (MPT), which holds that proper asset allocation is more important than individual security selection. That means that Wealthfront will make sure that your portfolio is allocated in a mix of asset sectors that are most likely to achieve your investment goals.

Traditionally advisors allocate your portfolio across three asset classes. Wealthfront portfolios are constructed of 7 – 8 asset classes for greater diversification and therefore greater returns. Your money is allocated into each of these asset classes using an exchange traded fund (ETF) for each class. The funds are index based, which means that they have less trading – and therefore lower transaction costs – than actively managed funds. Wealthfront never charges commissions or trading fees.

Types of Investment Accounts at Wealthfront

Wealthfront offers the following types of investment and savings accounts:

In building your portfolio, Wealthfront does not recognize your outside investment positions, including those held in an employer-sponsored retirement plan; as a result, you could be unintentionally over-invested in a single asset class

Wealthfront Path – Insight to Your Financial Planning

Wealthfront recently launched Path, a financial planning service that helps users plan for their financial future. At its core, Path gives Wealthfront members access to financial planning without having to talk to someone.

It only takes 5 minutes to set up and link to all of your outside bank and brokerage accounts, and uses a rolling 12-month average of how much you’ve been saving and spending to run its calculations. Use Path to get answers to:

How much should you save?

How much should you invest?

When can you retire?

and more.

Because Path links directly to all of your outside accounts, you have a complete and accurate picture of your finances as they are today and what you’re on track to have in retirement. Wealthfront’s team of PhDs have handled the calculations on the back end for you, so that you can get a visual idea of how increasing your savings, decreasing your spending, or changing your retirement age can impact your financial future. You can also use Path retirement planning, and change factors such as anticipated spending, changing your retirement date, and more.

Overall, this is a powerful service that helps you focus on the aspects of your financial plan that you can control – saving, spending, and retirement age. And you can do it all from your phone.

Wealthfront Features and Benefits

Wealthfront offers some of the best investment features in the industry, including:

Low minimum initial investment. You can open an account with Wealthfront with as little as $500. That’s perfect for a new investor or a small investor looking for an account to get started with. This is one of the lowest minimums available among investment platforms. The first $10,000 of assets is managed for free, so you can get started with no cost if your current account balance is less than $10,000.

Tax efficient investing. By investing primarily in index based ETFs, Wealthfront is able to largely minimize capital gains income that will be generated by actively traded funds. This is important because it means that your capital gains taxes will be minimal from one year to the next. Since the funds are index based, stocks within the funds are held for many years, and allowed to grow without generating capital gains tax liability.

Tax Loss Harvesting (TLH). Wealthfront offers this service on larger accounts. It offsets capital gains on winning investment positions, by selling off losing positions. This strategy not only reduces your capital gains tax liability, but it has been shown to improve investment returns over the long term. Their proprietary software will automatically choose investments that will work with your portfolio, while avoiding wash sale rules.

Direct indexing. On larger accounts ($100,000 and up) Wealthfront offers the Wealthfront 100, 500, and 1,000 plans, that allowing you to invest directly in the largest companies that make up the S&P 500 and S&P 1500 indexes. This creates an even greater ability to manage tax loss harvesting, which can improve your portfolio performance even more.

Investments in Real Estate and Natural Resources. These investment options are what sets Wealthfront apart from most other robo advisors. Most offer a balance between only stocks and bonds. Wealthfront, offers stocks and bonds too, but also adds real estate and natural resources to the mix. This gives you greater diversification than what most other investment platform offer.

Tailored Transfers & Selling Plan: Wealthfront uses their proprietary systems to transfer your investments in the most tax-efficient manner. With the Selling Plan, Wealthfront helps employees who hold public company stock sell their shares in a tax-efficiently and commission-free, providing further benefits.

Wealthfront Fees – The Lowest in the Industry

Wealthfront’s fee structure is one of the simplest in the investment industry. There is a flat annual management fee of 0.25% of your account value but, the first $10,000 is managed for free.

What that means is that if you have $20,000 in your account, you’ll be charged just $25 to manage the account for the entire year. That’s comprised of the first $10,000 being managed for free, then 0.25% for the next $10,000, or $25. You can also get an additional $5,000 of investments managed for free when you invite a new user and they join Wealthfront.

There are also no transaction fees, though there are small investment expenses that are charged within each individual ETF. That however is common any time you invest in funds, whether directly or through an investment platform.

Simply put, Wealthfront is one of the very lowest cost ways to get professional management of your investment portfolio. You can compare their fees to other managed investment accounts, such as Betterment, which is also among the lower-cost robo advisors.

Can Wealthfront Work For You?

If you are not interested in do-it-yourself investing, and you don’t have the portfolio size to meet the minimum requirements of traditional investment advisors, then Wealthfront could be the right way for you to invest your money. It’s also one of the very lowest cost investment management services available, given both its very low fee structure, and its tax efficient investing.

If you entertain the idea of do-it-yourself investing, Wealthfront is not the right choice. But if you want a hybrid arrangement, where part of your portfolio is professionally managed, while you do DIY with the rest, then you might consider having both a Wealthfront account, and a self-directed account with another brokerage firm. You could even consider using a managed investment service such as Personal Capital, which offers a free online tool for tracking your investments, and an optional managed investment service.

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Editorial Disclosure: This content is not provided or commissioned by the bank advertiser. Opinions expressed here are author’s alone, not those of the bank advertiser, and have not been reviewed, approved or otherwise endorsed by the bank advertiser. This site may be compensated through the bank advertiser Affiliate Program.